May the Salesforce Be with You!

Compensation plans speak louder than any speech by management. The tough part is to plot a strategy and set rewards accordingly

May 29, 2003, 12:00 AM EDT

By Michelle Nichols

"Why don't my salespeople do what I tell them?" sales managers and company presidents complain to me. "I tell them to do one thing and they do another." I've often found that the answer has nothing to do with listening skills. It's in the fine print of their sales reps' compensation plans.

It's the money, honey. That may sound rather crass, but regardless of what management says, salespeople are only human and, as a general rule, will do whatever their pay plans make the most rewarding. "Your actions speak so loudly that I can't hear a word you're saying," says a venerable piece of wisdom -- and a compensation plan speaks louder than just about anything.

The easiest way for management to understand its sales force is to follow the money. Salespeople will use the compensation plan to maximize their earnings. If the plan awards higher commissions for maintaining prior customers, that's where reps will direct their energies. On the other hand, if it pays more for bringing in new business, then that's where they will focus.

SOWING CONFUSION.

The frustration comes from crossed signals. Say, for example, management is telling its sales troops to go out and bring in new business, which is like telling them to march north. Meanwhile, the pay plan encourages the reps to maximize profitability, which is like instructing them to head west. The smart recruits will head west regardless of what their sales manager is saying, because that's where the financial rewards are bigger.

What to do? First, don't try to rewire salespeople's mental circuits, it won't change the way they respond. Rather, management must structure the compensation plan so it aligns with the direction in which they want the company to go. This is easier said than done, but it's nevertheless done every day, consciously or unconsciously, by every company, from sole proprietors to IBM.

To begin to structure your compensation plan, consider the three main types of sales revenues.

Ongoing Business From Established Customers. This means clients who buy from you on a regular basis, which is generally the easiest and most profitable sales-revenue stream to maintain. The downside: This business tends to be the least exciting. Think of salespeople who focus on this niche as farmers tending to their established fields.

New Business, Old Customers. This covers a variety of sales situations, like selling new products or services to the same contact or the same lines to a different department within the customer's company. Selling efforts help you penetrate deeper into your established accounts. These sales grow additional connections and strengthen your overall selling relationship.

Sales To New Customers. This is the engine of tomorrow's growth, but also the most expensive to accomplish -- and often the least profitable. Still, there's no denying it's the sexiest niche in the world of selling. It's also where most companies put their best salespeople, and for good reason. Recruiting new business requires the sharpest skills and the most resilience. There can be a lot of rejection, and it takes maturity to absorb the blows and keep on fighting. Salespeople who are successful in new-account sales are often referred to as hunters, because they are always stalking their next meal.

THE NEXT STEP.

Next, you need to understand what percentage of your present sales comes from each of these three groups, and at what levels and profit margins. Then comes the hard part: deciding what type of revenues you want your sales force to focus on. "Lots of all three" is not a good answer.

If this step sounds hard, that's because it is. And frankly, it should be. Too many companies make this decision by default, either copying last year's revenue plan or aping rival outfits. Unfortunately, there's no pat, one-size-fits-all formula. At a startup or a business that has made revenue growth its burning goal, there may be no choice but to focus on finding new customers. If you can't get enough revenue out of the first two categories mentioned above, your sales plan has no choice but to emphasize new accounts.

Be careful, though. In Texas, we have a saying, "Dance with who brung ya," and that applies here. Your established customers have brought you this far, and chances are they would prefer to maintain the realtionship. You just need to add more names to your dancecard without neglecting your other obligations.

CHURN AND BURN.

If yours is a more mature company, you can't afford to take your established customers for granted. You need to ensure they're happy before you go looking for new clients. Otherwise, you'll begin to churn customers, which is the worst of all situations because margins are lower and you still aren't increasing revenues. You may want to dedicate some sales people just to servicing your ongoing commitments.

When it comes to structuring a compensation plan, there are many variables. Management can reward sales reps with commissions, bonuses, and overrides. And a smart sales manager should never overlook the value of a sincere pat on the back, a free lunch or dinner, a presentation plaque, or even just a hearty round of applause.

Every business owner struggles with getting the sales compensation plan just right. But once management's revenue goals and the plan are aligned, that outfit is a power to be reckoned with. Never forget, it's much easier to get where you want to be when all the horses in your sales team are harnessed and pulling in the same direction. Happy Selling!